MTN creates new R10bn BEE scheme

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 23 Aug 2016
The Zakhele Futhi offer is expected to be launched on 12 September and will close on 21 October.
The Zakhele Futhi offer is expected to be launched on 12 September and will close on 21 October.

MTN will soon launch a new R9.9 billion broad-based black economic empowerment (BEE) transaction called MTN Zakhele Futhi, for when current BEE scheme, MTN Zakhele, contractually unwinds on 24 November.

MTN Zakhele Futhi is a special purpose vehicle, which will hold approximately 4% equity in the MTN group.

"This new transaction, together with the continuing contribution of the MTN Zakhele transaction, will translate to an effective indirect 'see-through' black ownership in excess of 30% of MTN's South African operations," according to MTN group executive chairman Phuthuma Nhleko.

A 30% BEE equity holding will qualify MTN to bid in a planned Independent Communications Authority of South Africa (ICASA) spectrum auction.

On 15 July, ICASA issued a public invitation to apply for licences for in-demand spectrum in the 700MHz, 800MHz and 2.6GHz bands, to be used to provide mobile broadband wireless access services in SA. However, in order to even apply, applicants must have a minimum 30% equity ownership held by persons from historically disadvantaged groups.

The bidding process is still in limbo after telecommunications and postal services minister Siyabonga Cwele earlier this month filed papers in the Pretoria High Court to try interdict and set aside the ICASA licensing procedure.

Creating value

"MTN Zakhele Futhi is designed to offer the black public an opportunity for long-term and sustainable benefits during the scheme's proposed eight-year period, giving them exposure to MTN's geographically diversified operations, earnings and growth markets," the telco says in a statement.

The Zakhele Futhi offer is expected to be launched on 12 September, and will close on 21 October. Copies of the prospectus containing details of the offer will be available at participating Nedbank branches and MTN stores around SA.

In the past, BEE shares were traded on the over-the-counter BEE market, but in 2014 the Financial Services Board mandated these shares must be traded on a licensed exchange in future. This led to MTN Zakhele listing on the JSE's BEE segment in November 2015.

The listing, however, came at an extremely tricky time as MTN had just announced it was facing a $5.2 billion (R71 billion at the time) penalty in Nigeria for failing to disconnect 5.1 million unregistered SIM cards by a regulatory deadline. After months of negotiations, in June 2016 MTN agreed to pay the federal government of Nigeria $1.671 billion (R25.1 billion at the time) over three years.

Despite this, MTN says Zakhele "has created exceptional value for its 124 000 black investors, notwithstanding an extremely difficult nine months". The scheme increased its value from R20 per share at inception in 2010 to about R77 per share when the share price closed on Wednesday, 17 August 2016. That equates to a total return of about 400% and a compounded annual growth of about 26%, according to MTN.

The proposed Zakhele Futhi scheme will take the form of a public offering, where qualifying black participants will be invited to subscribe for and beneficially own ordinary shares in the scheme ? with a minimum investment of R2 000. Current MTN Zakhele shareholders will be given the opportunity to re-invest a portion of their MTN Zakhele shares in MTN Zakhele Futhi.

The MTN shares to be issued to Zakhele Futhi will be issued at R102.80, a 20% discount to the 10-day volume weighted average price per MTN share on 17 August 2016 of R128.50.

Empowerment ethos

Nhleko says transformation and empowerment remain at the core of MTN's ethos and culture.

MTN says the mandatory unwinding of MTN Zakhele in November combined with the creation of Zakhele Futhi "will see MTN not only maintain its BEE targets as set out in the Information and Communication Technology Sector Code (the ICT charter) but also adhere to the B-BBEE Act, allowing MTN to further embed empowerment and transformation in the DNA of its business".

In addition to the new MTN Zakhele Futhi scheme, the MTN board proposed the introduction of a new employee share ownership plan (ESOP) for MTN staff, excluding directors and management. The new ESOP scheme will not require equity from eligible participants. Accordingly, MTN will issue approximately 0.1% of its issued share capital to be held in a trust for the benefit of these employees.

"Over the last 22 years, MTN has been one of the standard bearers of BEE and overall transformation amongst the top 10 JSE-listed companies. MTN's various empowerment initiatives, both for the general investor public and MTN employees, have enabled many South Africans to benefit from MTN's growth through equity ownership, not to mention the significant progress MTN has made in other areas of the balanced BEE scorecard," says Nhleko.